Welcome to the NEW Stock Market

Welcome again to STP Algo Trader!

We are kicking off our fourth week here and hope you have been enjoying the content…

Here is a reminder of our content schedule…

Tuesday – MARKET INSIGHTS - We share insights driven by the data from the system. We also discuss how the system evolves based on market data.

Wednesday – USER BLOG - We share the STP “User Blog.” This is where one of our users shares their experiences with the system. We will welcome any user submissions for this letter in the future.

Thursday – POSITION REVIEW - We thoroughly review a recent position. We will go through a play-by-play analysis of why the system chose the idea and how it played out.

Saturday – THE METHOD - This is where we go through each of the individual aspects of our system and explain them in detail.

We hope you had a chance to check it out, and you can access the archives at our algotrader.signaltraderpro.ai website.

Feel free to share any feedback or comments at any time. Either at the bottom of our web page or at [email protected] 

Again, welcome to STP Algo Trader. We look forward to making YOU money!

One of the hallmarks of a great trader is a surprising combination of disciplines.

The first is to have conviction in your plan. A great trader must be willing to believe in their process even when it isn’t working.

If the process has been built correctly, it will play itself out.

Remember our favorite saying about trading – “Plan the Trade, Trade the Plan.”

To have a great plan, you also need to have a plan to CHANGE the plan.

This is where the surprising combination plays a role.

Great traders must have the conviction to support their positions but then also be willing to acknowledge when the market environment has changed.

Last week, we discussed the kinds of updates we would make if we saw a change.

After last week's disastrous market action, we will begin to enact those changes.

What changed our mind?

First, we pay great attention to the stock market trend.

Most of the time, the stock market is in an uptrend. This is what our algorithmic trading system is set up for as the default.

Sometimes, though, the stock market leaves the uptrend and enters either into 1) consolidation or 2) a downtrend. Those two situations exist about 25% of the time, and number one has to happen to enter into number two.

Here is the chart of the S&P 500 along with a simple trend line we have drawn…

The bright green trend line we drew is not very scientific, but it does the job.

There is now no doubt that we have broken the uptrend in the stock market.

Over the next few weeks and months, we will find out whether we are in a period of consolidation or a new downtrend.

The optimistic view would be that we are in a period similar to the COVID period of 2020. That resulted in a "V" recovery, and the stock market was at a new high six months later.

The pessimistic view is that we are seeing a period more similar to the BEAR market of 2022. It could also be much worse and look like the Global Financial Crisis period from 2007 to 2009.

We – nor anyone out there – really know.

What we DO know with 100% certainty is that the existing uptrend has been broken. This is a fact.

We have further confirmation of this regime change by looking at the CBOE Volatility Index or “VIX.” Here is that chart…We will see what the future holds…

We have now traded at levels that we have only seen during periods of crisis.

Again, we are 100% certain that the current uptrend is over.

As we discussed in last week’s STP Algo Trader, this means that we will now be resetting our criteria in the system to correspond to the new environment.

That will involve us looking for more deeply oversold levels and ENTRY SIGNAL trigger points. It will also involve us looking for only the highest quality companies.

We now will only generate an ENTRY SIGNAL if the RSI trades below the 25 level and then back above 30. This compares to previously where we were looking for the 30 level.

We also will ONLY be looking for stocks with a score of “14” or “15” in the BULLSEYE category. It is important to be come more selectively.

Finally, we also will be closing out many OPEN SIGNALS. This will generate both profits and losses.

We will not make this change haphazardly and will implement it over the next week or so.

Our goal is to pare the recommendations to a much smaller group of higher quality – and deeply oversold – companies.

With the increase in the underlying stock market volatility environment, we do not need as many positions to generate an attractive return.

Remember that CASH is your greatest superpower during a period of market volatility.

We encourage our subscribers to stay tuned for the changes.

We also encourage readers to subscribe to Signal Trader – our entry-level software version.

While this type of environment can be frustrating for investors, it is an awesome one for TRADING!